Do you fall under IR35?

 In Tax

The question of whether you fall under IR35 (or not) depends on whether you meet the HMRC definition of ‘self-employed’.

If not, under the reforms in the 2018 budget mean you could be liable for Schedule E taxation and national insurance.

The treasury has however insisted that the reforms would not affect anyone who is genuinely self-employed, so the first step is to check your self-employed status.

The HMRC definition of self-employment is:

  • You’re in business for yourself, are responsible for the success or failure of your business and can make either a profit or loss.
  • You can decide what work you do and when, where and how to do it
  • You can hire someone else to do the work on your behalf
  • You’re responsible for fixing any unsatisfactory work in your own time
  • Your employer agrees a fixed price for their work – it doesn’t depend on how long the job takes to finish
  • You use your own money to buy business assets, cover running costs, and provide tools and equipment for your work
  • You can work for more than one client

If you answer ‘no’ to any of these questions or wish to check your employment status you can do so by following this link to the HMRC IR35 help tool.

The service is anonymous and won’t store your results, though you will be able to print the results if you wish. To complete the check, you’ll need to know your responsibilities, who decides what work needs doing, when where and how, how you are paid and if the work includes any benefits or reimbursements.

Demonstrate your self-employed status

It is clearly advantageous to be self-employed and if you are, it is important to be able to clearly demonstrate your self-employed status. One of the ways to ensure your self-employed status is clearly demonstrated is show how the working practices in your contract match the HMRC definition.

In addition, if you are able to diversify your business or change your working practices to satisfy more points on the list, the more your overall position as a self-employed person will be strengthened.

If you do fall under IR35, it’s important to contact us as soon as possible so we can ensure you are paying enough tax and national insurance.

How IR35 works

Where the IR35 structure applies the services provided as the income of the company are treated as personal employment income.

The calculation used by HMRC is to charge PAYE at 20% and NIC at 12% on the total income of the company, less any salary taken (as it is already subject to PAYE), a 5% allowance for expenses, and any pension contributions made (as these are tax allowable for employees).

In addition, there is provision for business travel, subsistence, professional indemnity insurance cover and benefits in kind. Training expenses however are not included.

The change in rules from April 2020 will mean larger businesses like banks will take on the burden of responsibility in deciding if a contractor is self-employed or falls under IR35. They will also have to pay NI of 12% of the contractors’ earnings for the first time, much like employers NI.

The new rules brought in would also prevent companies under IR35 from retaining profits to grow their businesses in the future.

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